$165M NovaStar MBS Settlement Gets Preliminarily Approval

Santa Clara, CA: A $165 million settlement has received preliminary approval, potentially ending allegations of securities fraud fraud against Wells Fargo, Deutsche Bank and the Royal Bank of Scotland, for their underwriting of $7.7 billion worth of mortgage-backed securities (MBS) issued by bankrupt subprime lender NovaStar.

If granted final court approval, the deal would end long-running litigation brought by investors including union pension funds. In 2006, NovaStar issued six securities tied to residential MBS, which combined, held more than $7.7 billion in assets. The plaintiffs alleged that the underwriters of those MBS, Deutsche Bank Securities Inc., RBS Securities Inc., and Wachovia Capital Markets LLC , which is now Wells Fargo Advisors LLC, lied in their offering documents by failing to disclose that NovaStar had abandoned its underwriting standards to increase the number of mortgages it could originate.
According to the suit, by June 2009, over half of the mortgages behind the securities had defaulted amid the housing collapse, resulting in massive investor losses. The class action was filed in 2008.

According to the settlement documents, if granted final approval, plaintiffs would receive $30.84 per $1,000 of face value of the securities they purchased. A final settlement hearing is scheduled for September.

The case is New Jersey Carpenters Health Fund v. Royal Bank of Scotland Group PLC, et al., case number 1:08-cv-05310, in the U.S. District Court for the Southern District of New York.